the uberization of finance: investing in non-bank banks · 2016-07-08 · investors gave us these...

THE UBERIZATION OF FINANCE:

INVESTING IN NON-BANK BANKS

Shinnecock Partners

Presentation prepared for Merrill Lynch

Copyright © 2015 Shinnecock Partners L.P. All rights reserved. For exclusive use by clients of Shinnecock Partners. Shinnecock Partners

Is the Search for Yield an Impossible Quest?.…………………………………………….

Pilgrims on the Quest for Yield…………………………………………………………….

Uniquely Achieving the Criteria……..………………………….........................................

Comparative Advantage……………………………………………....................................

Non-Bank banks, Alternative Lenders and Shadow Banks….…......................................

Alternative Lenders are Disruptors…………………………….........................................

Respected Third-Party Validation…………………………………....................................

Enormous and High-Growth Market…………………...……….......…………………....

Portfolio Tradeoffs………………………………………………………………………….

Strategy Diversification……………………………………….........………………………

Protection from the Unexpected..…………………………………...……………………..

Model Portfolio Characteristics……………………………………..…………………….

Portfolio Risks…………..…….……………………………………...…………………….

Model Portfolio Operational Assumptions……………………………………………….

Meeting the Challenge……………………………………………….…………………….

Appendix ……………………………………………………………………………………

Table of Contents

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Copyright © 2015 Shinnecock Partners L.P. All rights reserved. For exclusive use by clients of Shinnecock Partners. Shinnecock Partners 1

Investors gave us these search criteria:

Compelling yield now

Protection from the unexpected

Liquidity

Low correlation

Portfolio complement

Cash income

Quality controls

Simple

Are we Don Quixote in a Zero Interest Rate

Environment?

Is the Search for Yield an Impossible Quest?



The Journey:

Endless due diligence, evaluations, and quantitative

analysis led in circles

After years of investing in the “non-bank” lending

space, a.k.a shadow banks, we finally connected the

dots!

Our Epiphany:

Let investors earn the spread bankers have

traditionally received

Create a diversified portfolio of yield-generating

niche alternatives across multiple strategy segments

Pilgrims on the Quest for Yield



Almost too good to be true

Attractive returns: 8% - 10% (pro forma)

Short duration: under two years

Downside protection: 8x return buffer over current

write-off expectations

Quarterly liquidity

Low correlation from unique investments

Multi-asset diversification

Five strategy segments

Ten discrete allocations to sub-manager domain

experts

Cash income

Model Portfolio

Uniquely Achieving the Criteria

Please see important disclosures beginning at page 40 of this presentation



Model Portfolio High Yes Yes Moderate Low Low Low

4

Model Portfolio: Comparative Advantage

High-YieldBonds High No Moderate Moderate Moderate Moderate Moderate

DividendStocks Low No Moderate High High Moderate Low

REITs Moderate Maybe No High Moderate High Low

MLPs High No No High Moderate High Low

Closed-endBond Fund High No No High Low High Low

BDCs High No No High Moderate High Low

SBA Loans High No Moderate Low Low Moderate Moderate

Yield Co’s Moderate Maybe No Moderate Low High Moderate

IncomeProperty Moderate Maybe No Low Low Low High

Additional Considerations:

• Investment time horizon; the relative importance of each characteristic is investor determined. This chart is meant to be a generalized view.

Investment Type

YieldRising Rate Protection

Downside Protection

LiquidityCorrelation to

MarketVolatility

Transaction Costs



$51 trillion rapidly growing global market serviced by

“non-bank” financial institutions*

Traditional lenders hamstrung by bloated

bureaucracies, dated technology, restrictive regulation

and need to repair balance sheets

Alternative lenders as distinguished from traditional

banks:

Do not accept deposits

Act as intermediaries, pooling loans

Provide a conduit between investors and borrowers

Enjoy a substantial cost advantage

Usually specialize in a particular niche

Alternative Lenders, Non-Bank Banks and Shadow

Banks All Mean the Same Attractive Thing!

*Financial Stability Board Report 2013



Disrupting the market through:

New Technology: “big data” analytics level the

playing field, improving lenders’ ability to

evaluate credit

Streamlined Organizations: allow lenders to

offer loans at lower rates than traditional players

Efficient Customer Acquisition: new media

channels enable lenders to source borrowers at

lower costs

JPMorgan Chase CEO Jamie Dimon famously said:

“Silicon Valley is coming”*

Alternative Lenders are the Disruptors

*JPMorgan Chase & Co. 2014 Annual Report



Goldman Sachs: Alternative lenders are “the future of finance”

Financial Stability Board: Broad global reach

Morgan Stanley: 51% CAGR through 2020

Harvard Business School: Small business credit opportunity is

compelling

McKinsey: Alternative lenders beat banks

Towers Watson: Multi-strategy execution is superior to a single

strategy allocation

Credit Suisse: Fin tech is real

Moody’s: More securitizations

The Wall Street Journal: “The Uberization of Finance”

Conning: Greater growth ahead in life settlements

Respected Third-Party Validation*

*See appendix page 39 for article information



$12 trillion in outstanding U.S. loans, including*:

$843 billion in consumer loans

$186 billion in small and medium business loans

$832 billion in leveraged business lending

$2.35 trillion in commercial real estate debt

$1.17 trillion in mortgage originations

Over $6.50 trillion in other loans (e.g. securitizations)

From these segments, approximately $1.6 trillion is

forecasted to move quickly to alternative lenders with

annual net profits of $11 billion for investors

Global market in trade finance of $18 billion**

Conning estimates a $180 billion life settlement

market… “a growing unmet need” and an “increasing

opportunity”***

Enormous and High Growth Market

*Goldman Sachs Global Investment Research, Equity Research, “The Future of Finance Part 1”, March 3, 2015

***Conning Research Report - 2014

**Oliver Wyman: The Future of Transaction Banking Volume 2: Trade Finance



Portfolio Tradeoffs

Appetite

For

Risk

Strategy Diversification

•Yield

• Leverage

•Duration

•Collateral

• Liquidity

•Correlation

Loan Selection Self-Selected

vs.

Domain Experts

Portfolio Balance



Consumer: invest in consumer platform (“marketplace”)

loans and niche lenders

Business: invest in business platform loans and niche

lenders

Real Estate: originate private short-term “bridge”

financing for commercial, multi-family and residential

real estate

Trade Finance: finance the export of raw goods from

local suppliers to international importers and related

accounts receivable

Life Settlements: acquire unwanted life insurance

policies from original policy owners

No Student Loans

Strategy Diversification



Margin of Safety

Before Principal Loss**

Protection From the Unexpected

Return before Write-Offs*

13.0%

Current Annual Write-Offs

Excess return provides a

margin of safety

approximately 8x greater

than current write-offs

*Annual return before write-offs less sub-manager operating expenses and management fees.

**Assumes losses are evenly distributed among sub-managers.

1.6%

11.4%



Model Portfolio Characteristics

Net Yield* 8.7% annual yield (LTM)

Leverage 7.4%

Duration 19.3 months

Liquidity*Quarterly, after one-year

lockup period

Cash IncomeQuarterly income

distributions available

Correlation Low

Sub-Manager6.8 average years in

operation

*Special terms with selected managers



Portfolio Level

$10 million+ required to achieve manager

minimums and adequate balance

Liquidity must match that of the underlying

manager allocations (e.g. lockup period,

notification requirements, audit holdback, cash

income distribution options)

Expense assumptions based on modest scale with

delegated management

Operational expenses and fees of 2% per annum

Model Portfolio Operational Assumptions



Portfolio Risks

14

SCENARIO POSSIBLE OUTCOME RISK MITIGATION

Economic Crisis –

Maturity ExtensionLess Liquidity Short Duration Starting Point

Economic Crisis –

Borrower Failures and

Asset Depreciation

Higher Write-Offs;

Slower and Smaller Recoveries

Significant Rate Buffer/

Low Loan-to-Value Ratios/

0.02% Average Position Size*

Individual Manager Failure Return ReductionLow Sub-Manager

Concentration

Increased Competition Lower Returns

Enormous Market Potential and

Returns Exceeding Current

Alternatives

Regulatory or Political Actions Lower ReturnsDiversification by Strategy and

Sub-Manager

*Portfolio allocation-weighted sub-manager average position size with largest position 1.62%



Compelling yield: 8% - 10% pro forma annual return

Protection from the unexpected:

Rising rates: less than two-year average duration

Shock defaults: approximately 8x buffer

Liquidity: quarterly, after lockup period

Low correlation to equities and interest rates

Portfolio complement from unique asset

diversification: not dividend paying equities, REITs,

MLPs, closed-end funds or traditional bonds

Cash income: quarterly distribution option

Meeting the Challenge



Model Portfolio Track Record……...……………..………..............

Correlation…………..……………………………………………….

Model Portfolio Allocation..………………………….….....……….

Summary of Sub-Manager Statistics……………………………….

Allocations……………………………………………………………

Emerging Manager Benefits………………………………………..

Multi-Manager Fund Advantages….……………….……………...

Shinnecock Partners………………………………………………...

Third-Party Reference Citations…………………………………...

Notes……………………………………………….............................

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40

AppendixTable of Contents



Model Portfolio Track Record

Performance and Risk Analysis, November 2014 – October 2015

(Pro forma based on actual results from underlying managers)

Portfolio S&P 500 BIG*

Compound Annual Growth Rate

(CAGR)8.7% 3.0% 2.9%

Sharpe Ratio @ 0% 22.7 0.2 1.0

Annualized Standard Deviation 0.4% 13.8% 2.9%

Max. Drawdown † 0.0% (8.9%) (2.1%)

Skew 1.2 0.5 0.7

Kurtosis 2.5 0.4 1.5

†In past 10 years, S&P 500 maximum drawdown was (52.6%) and BIG was (5.0%)*Citigroup U.S. Broad Investment Grade Bond Index

17

CAGR Portfolio S&P 500 BIG*

2015 Annualized through October 8.9% 1.1% 1.0%

2014 9.3% 11.4% 5.9%

2013 12.0% 29.6% (2.0%)

2012 9.9% 13.4% 4.2%



Allocation 1 2 3 4 5 6 7 8 9 10 S&P 500 BIGModel

Portfolio

1

2 0.46

3 0.47 0.33

4 0.50 0.26 (0.12)

5 0.12 (0.52) 0.15 (0.33)

6 (0.02) 0.48 (0.08) 0.36 (0.35)

7 (0.05) 0.13 0.08 (0.11) (0.11) 0.18

8 0.14 0.41 (0.08) 0.52 (0.48) 0.60 0.08

9 (0.18) (0.25) (0.04) 0.14 0.02 0.09 (0.10) (0.00)

10 (0.33) (0.67) (0.68) (0.08) 0.14 (0.20) (0.27) (0.29) 0.38

S&P 500 0.12 (0.10) 0.10 (0.02) (0.05) 0.05 0.00 0.15 0.13 (0.30)

BIG 0.30 0.07 (0.13) 0.17 0.03 0.05 0.06 0.30 (0.18) (0.44) 0.06

Model Portfolio

0.36 0.33 0.15 0.10 (0.16) 0.16 (0.23) 0.26 (0.00) (0.29) 0.23 0.02

18

Low Correlation Between Allocations & Indices

*Spearman’s rank correlation. Represents the common time period for all managers from May 2014 through July 2015**Citigroup U.S. Broad Investment Grade Bond Index



Model Portfolio Allocations

Portfolio

Balance

Domain Expert

Assets Under Management

(“AUM”)

Weighted-Average AUM: $200 million

Total AUM: $2 billion

Estimated Capacity: $6 billion


Summary of Sub-Manager Statistics*

#

Projected Allocation

(%)Experience

(Years)Firm AUM

($MM)

Mgr. Est. Capacity ($MM)

Current Leverage

(%)

Projected Leverage

(%)

GrossYield (%)

Net Yield Less Fees &

Expenses (%)

Current Write-offs

(%)

Average Loan-to-

Value (%)

Average Duration (Months)

1 10.0 13.4 204 750 40.0 100.0 18.0 12.0 4.5 N/A 12.0

2 10.0 3.1 298 500 0.0 0.0 21.5 20.0 4.9 N/A 11.8

3 10.0 5.3 70 275 0.0 0.0 16.0 10.5 0.0 N/A 9.0

4 10.0 5.5 311 450 0.0 0.0 18.0 12.0 5.0 N/A 6.0

5 10.0 9.3 304 1,000 0.0 0.0 18.1 14.9 1.8 55.6 9.8

6 10.0 7.0 82 500 0.0 0.0 12.0 10.3 0.0 48.0 15.0

7 10.0 6.8 134 500 17.0 100.0 11.4 10.1 0.0 53.7 33.0

8 10.0 6.7 273 400 0.0 0.0 15.5 13.2 0.0 75.0 4.0

9 10.0 5.5 340 1,000 0.0 0.0 16.3 13.9 0.0 30.0 65.0

10 10.0 5.0 161 500 16.7 25.0 17.0 13.0 0.0 55.0 27.0

100.0 6.8 218 588 7.4 22.5 16.4 13.0 1.6 52.9 19.3

2,177 5,875 * See notes in Appendix for column heading descriptions

Manager

Consumer Lender -

Marketplace

Business Lender -

Marketplace

Business Lender -

Small Public Cos.

Business Lender -

Small to Mid-Cap

Public Cos.

Allocation-weighted Average

Total

Business Lender -

Small Private Cos.

Real Estate Lender -

Commercial

Real Estate Lender -

Residential

Trade Finance

Life Settlements

Multi-Strategy

Lender

20



Niche Strategy

Alpha generation from active selection of

high-yield consumer loans from several

online marketplaces

Management of exposure to marketplaces

and credit grades gives a strong risk-reward

profile

One of the first lenders to complete a

securitization of marketplace loans

Sustainable Competitive Edge

Leverages relationship with trading

technology sister company for best-in-class

execution speed

Maintains marketplace access available

only to first movers in the space

Uses proprietary credit models

Allocation 1Consumer Lender - Marketplace

Pedigree/Background

Founder

Two decades in structured finance

Head of Asia Program Trading and Index

Arbitrage

Managing Director of Equity Derivatives

Trading and Asian Structured Finance



Allocation 2Business Lender - Marketplace

22

Pedigree/Background

President and Portfolio Manager

Served as the CEO of several successful

startups

Led a product team at Ticketmaster

Frequently cited as a P2P lending expert

and appeared in The Wall Street Journal

and Fox Business


“First mover” advantage - negotiates

favorable or exclusive arrangements with

lending platforms

Expertise in platform evaluation and

statistical-based credit analysis

Relative scale provides deep loan

diversification

Niche Strategy

First and largest fund dedicated to acquiring

loans from lending platforms focused on

financing small businesses

Fills the gap in financing options created by

the recession and new financial regulations

Short duration loans with highly attractive

yields



Niche Strategy

Finances growing companies in structured

fixed-price transactions from a senior

position in the capital structure

Layers a directional warrant or convertible

position for upside potential

The lead investor with control, providing

additional downside protection

Pedigree/Background

Co-Founding Partner

Over 15 years operating large and small

publicly traded companies

Ran operations for a large investment bank

Co-Founding Partner

Over 15 years investing in small- and

micro-cap companies and managing

investment portfolios


Experience in mitigating default and

contractual risks through favorable

covenants and borrower due diligence

New entrants require lengthy ramp-up

period

Allocation 3Business Lender – Small Public Companies



Niche Strategy

Focuses on high yield, short duration, senior

secured revolving credit facilities

Lends against receivables or hard assets

with lock box controls

Approaches lending from a merchant

banking perspective, aligning products with

borrowers’ interests, increasing

opportunities for repeat transactions


Substantial barriers to entry due to high

level of required expertise

Operationally intensive business

Long-term relationships

Limited potential scaling

Allocation 4 Business Lender – Small- to Mid-Cap Public Companies

Pedigree/Background

Founder

Two decades in structured finance

Head of global derivatives trading

Principal at asset management, brokerage,

and investment banking firms

Co-founder and portfolio manager of

investment company



Pedigree/Background

Founder and Chief Investment Officer

Head of Proprietary Fixed Income

Merchant Banking and Co-Head of Asset-

Backed Securities at a major bank

Head of Financial Institutions Strategy

Worked in the Fixed Income Resource and

Restructuring Group at a major bank


Operates within difficult to navigate

sectors which most players have no

experience in evaluating

Identifies opportunities from a network

built during 20 years of industry

experience

Allocation 5Business Lender – Small Private Companies

Niche Strategy

Focuses on first time borrowers who want to

remain private

Lends to cash-generating, asset-rich

companies in growth mode to avoid

distressed borrowers

Concentrates on overlooked sectors

requiring short-term financing to solve

timing and cash flow issues



Pedigree/Background

Co-Founder, Portfolio Manager

Over 20 years in corporate finance and real

estate investment banking

Transacted $2 billion in real estate

transactions

Co-Founder, Principal

Over 18 years in private investment

management and investment banking


Expertise in on-the-ground real estate due

diligence and structured finance

Originates transactions through a network

of nearly 400 brokers

Allocation 6Real Estate Lender - Commercial

Niche Strategy

Invests primarily in direct, short-term

commercial bridge loans backed by first trust

deeds

Diversified by geography and asset type

Typically lends to experienced real estate

borrowers requiring short-term, rapid

commitments for acquisition, stabilization,

and repositioning



Pedigree/Background

CEO

Founder of one of the nation’s largest hard

money lending groups

Navigated a major mortgage lender

through the bankruptcy process and

structured a $167 million securitization of

home mortgages


Managed a portfolio through 2008 and

2009 with double digit returns

Potential to increase returns through the

use of modest leverage

Allocation 7Real Estate Lender – Residential

Niche Strategy

Invests primarily in direct, short-term

residential bridge loans backed by first trust

deeds

Targets borrowers needing rapid response or

having imperfect credit histories

Focus on hard asset values



Pedigree/Background

Fund Manager

Built and led a team covering structured

commodity finance and commodity trading

at a major bank

Experienced in commodity securitizations

15 years’ experience in African commodity

trading

Allocation 8Trade Finance

Niche Strategy

Finances trade opportunities backed by

liquid short-term assets throughout Africa

Finds dislocated lending markets ignored by

traditional lenders due to their inefficient

risk assessment methodologies


Strategic access to counterparties in over

30 African countries allows geographic

diversification

Over 50 years’ combined management

experience in African commodity finance



Pedigree/Background

President and CIO

CEO and Founder of multiple firms

Eight years in life settlements

Vice President of Portfolio Management

CEO of a major New York life insurance

company’s broker-dealer subsidiary

16 years in insurance products

Allocation 9Life Settlements

Niche Strategy

Life settlements are uncorrelated to other

asset classes and interest rates

Arbitrages the face value of the life

insurance policy versus the sum of the

policy purchase price and expected future

premium payments

Sufficient scale


Low competition in the middle market: the

biggest players in the space, such as AIG,

Apollo and Fortress, have to compete at

large auctions, while smaller players

cannot diversify properly

In-house life settlement provider sources

widely diversified policies; fully licensed,

and uniquely experienced



Pedigree/Background

Portfolio Manager

Partner at a private equity firm with $4

billion in assets under management where

he led the financial services practice

Business development and M&A at a

NASDAQ listed tech firm

Allocation 10Multi-Strategy Lender

Niche Strategy

Invests in various private credit and

specialty finance products

Broadly diversified between both consumer

and business lending across multiple niches

Real estate tax liens and single family

housing, receivables, equipment leases,

auto dealer finance, etc.


History of success in several asset

categories

Led by experienced investors capable of

opportunistically jumping into attractive

new sectors

Special expertise in due diligence,

origination, and servicing of unique asset

types



Emerging Manager Benefits

Smaller/younger funds beat larger/older funds (1995

- 2014) *

Smaller funds consistently outperformed midsize and larger

Small and large funds compounded money at 9.0% and

7.32% respectively

Larger funds trailed smaller ones during periods of financial

stress

Young funds in the tenth percentile of assets lost just

0.48% per month to the bigger funds’ 1.28% monthly

shortfall in the ‘08/’09 financial crisis

Fund selection/due diligence is key**

Small funds led when looking at the top 25% of best

performers

Larger funds in bottom quartile outperformed smaller by more

than 10%

31

*City University Center for Asset Management Research Study, 2015

**PerTrac Study, 2012; Imperial College London Study, 2012



Disciplined and replicable process for selection and

monitoring of managers

Immediate diversification

Avoids problem of meeting multiple manager minimum requirements

Reduces manager-level risk

Less volatility

Utilize scale to efficiently apply larger allocations to an asset

class without “timing” concerns of any one manager

Simplified tax and accounting (single manager versus many

separate managers)

32

Multi-Manager Fund Advantages



An alternative asset management firm

Multi-strategy fund of funds – launched April 1989

Futures fund of funds – launched April 1993

Private equity funds – launched June 2012 and November 2014

Niche-based fund of funds – launched August 2013

Income fund of funds – launched January 2016

Started as a “friends and family” private office and now its

offerings are available to other investors

Shinnecock PartnersEstablished 1988

Shinnecock Futures Fund named Best Managed

Futures CTA Fund in North America by World

Finance magazine in 2011



Scalable & Credible Organization

26-year track record of successfully identifying

talented and experienced money managers

Rigorous due diligence process

High quality service providers: Deloitte & Touche

(auditor), SS&C (administrator), and First

Republic (cash custodian)

Professional staff of six people

Dedicated and longstanding principals with deep

experience

25-year+ history together

Largest investors in funds

Deep domain knowledge

34



Shinnecock Value Add

35

65,000 potential universe

Due diligence - 315

questions

Quantitative evaluation of

160 variables

Third party investigation

Manager Selection

Identify the best

and the brightest

`Ongoing Management.Portfolio Construction

Balanced allocation Manage portfolio through

time and events

Analytics:

Efficient frontier

Omega

Delta

Stress testing

Normative behavior

Assets under

management tracking

Peer group comparison

Administration: reporting, portfolio and investor accounting, one K-1



Experienced Management Team

Alan Snyder – Founder/Principal

Alan Snyder founded Shinnecock Partners in 1988 and serves as its Managing Partner. Alan spent 14

years at Dean Witter (renamed Morgan Stanley) and finished his career there as an Executive Vice

President, Board Member and Executive Committee Member. He formulated the launch of the

Discover Card as member of three-person management team. Subsequently, he restructured First

Executive/Executive Life, a $20 billion life holding company including $1.5 billion alternatives

portfolio, as President and Chief Operating Officer. He was later appointed as Executive-in-Charge by

the California State Insurance Commissioner. He has served as a special advisor to Kelso Partners and

Goldman Sachs. He founded and was Chairman, President and CEO of Answer Financial, which

became the largest independent seller of auto and home insurance in the U.S. Answer was sold to

Esurance, who sought its technology and third-party distribution and was more recently purchased by

Allstate. Alan is a graduate of Harvard Business School (Baker Scholar, MBA) and Georgetown

University (Wall Street Journal Scholar, BSBA). He serves as Chairman of the Western Los Angeles

County Council of the Boys Scouts of America.

Joel Parrish - Principal

Joel Parrish heads the accounting, investor relations, and day-to-day operational demands at

Shinnecock. He has created custom software applications and works with Alan to manage the Fund’s

portfolio in the evaluation, selection, weighting, and monitoring of Sub-Managers. Joel joined

Shinnecock Partners full-time in 1998. He is registered with the NFA as a Principal and Associated

Person, and holds a Series 3 license. He began working with Shinnecock Partners in 1992 as a

consultant, creating proprietary computer software dedicated to portfolio modeling and the

comparative evaluation of money managers. Joel traded a private futures account from 1994 to 2003,

for which he researched, developed and implemented a number of computerized trading systems. He

earned both Bachelor of Arts and Associate of Arts degrees from Columbia College.



Experienced Management Team (cont.)

Kevin Zvargulis, CFA – Senior Associate

Kevin provides investor relations support and works with the firm’s principals in money manager analysis,

selection and monitoring. Prior to joining Shinnecock, Kevin served as Investor Relations Manager at

Arixa Capital Advisors and was responsible for business development, investor communications and

selected operational functions. Kevin contributed to the firm’s growth from $2.5 MM in 2011 to $105

MM in 2015. Prior to Arixa, Kevin worked as an investment analyst with The Swarthmore Group. He is

a graduate of Davidson College and Temple University, where he obtained an MBA/MS in

Finance. Kevin is a CFA charter holder.

Christian Williams – Analyst

Christian Williams assists the principals with operations and financial analysis. His responsibilities

include money manager monitoring, portfolio review, assisting with marketing, quantitative evaluation of

prospective money managers, due diligence and operations. Christian is a graduate of Boston College,

and is currently pursuing his Series 3 and Chartered Alternative Investment Analyst designation.



Experienced Management Team (cont.)

Kim Clements – Office Manager

Kim Clements assists the principals with investor relations. Previously, she was an independent

strategic/financial business consultant and multimedia specialist with experience in broadcast, digital, and

print media. She holds an MBA from California State University, Los Angeles and serves on the Board of

Directors for the Alumni Association after serving two years on the Financial Oversight Committee.

Jennifer Laughlin – Admin & Sales Support

Jennifer Laughlin joined Shinnecock in 2008 and provides administrative and sales support to the

principals. Prior to Shinnecock, she worked on the Equity Sales desk at UBS and the Equity Trading Desk

at Alliance Capital (now Alliance Bernstein). Past experience also includes investor relations and

sales/event marketing. Jennifer is a graduate of Denison University and The London School of

Economics.



• Goldman Sachs, “The Future of Finance”: March 2015

• Financial Stability Board, “Global Shadow Banking Monitoring Report 2015”:

November 2015

• Morgan Stanley, “Global Marketplace Lending”: May 2015

• Harvard Business School, “The State of Small Business Lending”: July 2014

• McKinsey, “The Fight for the Customer: McKinsey Global Banking Annual Review

2015”

• Towers Watson, “Alternative Credit Perspectives”: September 2015

• Credit Suisse, “Online Finance Trends”: November 2015

• Moody’s, “2016 Global Outlook”: December 2015

• Wall Street Journal, “The Uberization of Finance”: November 2015

• Conning, “Life Settlements: Growing Unmet Need, Increasing Opportunity”: 2014

Third-Party Article Titles and Dates Published



Notes

We provide various indices as proxies for certain sectors of the broader markets. An unmanaged index does not represent the return available

from any particular investment as there is no consideration of the costs that would be incurred to achieve the results, e.g. transaction fees,

bid/ask spreads, administrative and management expenses, etc.

Strategy Definitions

“Consumer” loans are generally unsecured loans to consumers, often made through an online lending platform, and typically used for debt

consolidation and refinancing. This strategy may also include secured lending (e.g., tax lien loans) and non-performing (delinquent) consumer

debt that is purchased in pools for a substantial discount off face value.

“Business” loans are typically senior-secured small business loans made by alternative lending institutions. Sub-categories may include,

without limitation, PIPEs (Private Investment in Public Equities), equipment leasing (secured by the leased equipment), receivables finance

(secured by inventory) and medical receivables (loans advanced for medical care related to personal injury settlements).

“Real Estate” loans are made by private lenders, secured by the underlying property. The borrower benefits from an easier application and

approval process, faster closing and availability of loan types and amounts that may not be offered by traditional banks. Lenders benefit from

relatively high interest rates, a short loan term and a relatively low loan-to-value ratio.

“Trade Finance” primarily involves financing transactions between importers and exporters of goods. Trade Finance helps settle the conflicting

needs of the importer (supply risk) and exporter (payment risk). Loans are very short-term in nature and secured by the assets being delivered.

“Life Settlements” are the sale of a life insurance policy by the original owner to a third party for more than the cash surrender value but less

than the face value. The third party becomes responsible for the payment of premiums, and receives the death benefit upon the passing of the

insured.



Notes (cont.)

Sub-Manager Statistic Definitions

“Duration” is the weighted-average time until principal repayment. Consideration is given to amortization of principal, interest received and

any prepayments.

“Loan-to-Value” (LTV) is the ratio of a loan amount to the value of the underlying asset or collateral securing the loan. For example, a

$250,000 mortgage loan secured by a property valued at $500,000 would have a loan-to-value of 50%.

“Annual Return before Write-offs less Sub-Manager Expenses” is the allocation-weighted compound annual growth rate of the Initial Sub-

Managers after fees and expenses but before incentive fees and deductions for loan write-offs.

“Current Annual Write-offs” is the allocation-weighted average of Initial Sub-Manager current loan default rates, net of recoveries.

“Excess Annual Return for Principal Break-even Protection” is the theoretical allocation-weighted average amount of excess positive return

over current write-offs (net of recoveries) available to cover additional write-offs (net of recoveries). This is an aggregate calculation and does

not account for any variation between Initial Sub-Managers, i.e., assumes that each Initial Sub-Manager would experience an equal rate of

return, write-offs and recoveries.

Performance Statistic Definitions and Notes

"Compound Annual Growth Rate“ (CAGR) is the annual return that an investment would have realized over the specified period had the

investment grown at a consistent interest rate for the duration of such period.

“Max. Drawdown” means the largest peak-to-valley decline experienced by the specified strategy, i.e., the greatest cumulative percentage

decline in month-end net asset value due to losses sustained in any period in which the initial month-end value is not equaled or exceeded by a

subsequent month-end net asset value.

"Standard Deviation" is a measure of how dispersed returns are from their average (a lower number indicates less volatility).



Notes (cont.)

“Sharpe Ratio” is a measure of the return earned in excess of the risk-free rate, relative to the risk. Monthly Sharpe Ratio is calculated as the

average monthly return minus the risk-free rate, divided by the standard deviation of returns. Annualized Sharpe Ratio is calculated by

multiplying the monthly Sharpe Ratio by the square root of 12. The higher the value of this indicator, the greater the quality of the returns on a

risk/reward basis. This presentation presents sharpe ratios using a risk-free rate of 0%.

“Skew” (Skewness) measures the symmetry of a return distribution around its average. A skew of zero would indicate a perfectly symmetrical

distribution, such as the standard bell curve. Positive skew is more favorable because it indicates the greater likelihood of positive returns.

“Kurtosis” is the measure of the width of the peak of a return distribution as compared to a normal distribution (which has a kurtosis of 3).

Positive excess kurtosis (above 3) indicates thicker “tails” and a more peaked distribution whereas negative excess kurtosis (below 3) indicates

flatter “tails” and a flatter peak. When comparing the kurtosis of two return distributions, higher kurtosis is considered more favorable as it

indicates less variability of returns from the average.

The Standard & Poor's 500 (S&P 500) is an American stock market index based on the market capitalizations of 500 large companies having

common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones

Indices.

The Citigroup U.S. Broad Investment Grade Bond Index (BIG) measures the value of the broad U.S. investment-grade bond market, including

Treasury, government agency, corporate and mortgage-backed securities. All bonds in the index must be rated at least BBB- or Baa3, have a

maturity of at least one year, and a total value outstanding of at least $200 million.

the uberization of finance: investing in non-bank banks · 2016-07-08 · investors gave us these...

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